Per Unit Deluxe Regular $ 1,030 $ 610 Sales price Costs: 320 130 Direct materials 88 180 Direct labor 270 90 Variable manufacturing overhead Fixed manufacturing overhead Variable operating expenses 102 34 121 63 497 $ 113 901 Total costs $ 129 Operating income *allocated on the basis of machine hours
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Making product mix decisions
Tread Light produces two types of exercise treadmills: regular and deluxe. The exercise craze is such that Tread Light could use all its available machine hours to produce either model. The two modes are processed through the same production departments. Data for both models are as follows:
Requirements
- What is the constraint?
- Which model should Tread Light produce? (Hint: Use the allocation of fixed manufacturing
overhead to determine the proportion of machine hours used by each product.) - If Tread Light should produce both models, compute the mix that will maximize operating income.
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